S.D. council panel gives OK for pact that extends to 2053

A plan by the city of San Diego to renew an existing 2 percent hotel room tax to finance tourism promotion received the blessing Wednesday of a City Council committee.

The proposed extension — for the next 39½ years — is projected to raise an estimated $1.2 billion in revenue through the year 2053. Without the room surcharge, which still must be approved by the City Council and local hoteliers, San Diego would have little or no funding to market the city as a prime destination for overnight stays, city officials argue.

“I remain a strong supporter of this program,” said City Councilman Kevin Faulconer, who also sits on the council’s Budget and Finance Committee. “We were one of the first cities to start a Tourism Marketing District, and the number of other cities (that have marketing districts) continues to grow, not surprisingly, because it works, and it’s a competitive market out there.”

Before the Budget Committee was a plan that spells out the operation of the Tourism Marketing District and how levies will be assessed in order to raise revenue for marketing San Diego for leisure, business and group travel. The committee unanimously approved the revised plan for the district, which should go before the council this fall.

The current Tourism Marketing District and associated room tax, created in 2008, are due to expire at the end of the year, and no new funding requests can be acted on for the next year until the new district is approved.

By the end of the year, $112 million in revenues will have been generated through the 2 percent levy, which city officials say is responsible for creating 15 million room nights citywide over the past five years. Not only is the revenue used by the San Diego Convention and Visitors Bureau to market San Diego in television, print and online advertising, but it’s also been used to promote key events throughout the year such as San Diego Beer Week and the Rock ’n’ Roll Marathon, which bring overnight visitors to the city.

Unlike the current 2 percent levy, which applies to all city hotels and motels of 70 rooms or more, the new plan calls for assessing all lodging destinations in the city. The 2 percent surcharge, which is over and above the city’s 10.5 percent room tax, would now apply to all hotels of 30 rooms or more; a tax of 0.55 percent would be levied on all those properties with 29 rooms or less, including seasonal rentals.

The city has taken much longer to craft a new plan for the marketing district than it had originally anticipated because of concerns that it will be challenged in the courts. Attorney John Lambeth, hired by the city to advise it on the district, told council members Wednesday that changes were made so that it would be less vulnerable to a legal challenge.

At issue is Proposition 26, a state ballot initiative approved in 2010 that further limits the ability of local governments to impose fees and charges without two-thirds voter approval. Lambeth said the plan for San Diego’s tourism district was narrowly crafted to make sure it would fall within the exceptions included in the proposition. That meant devising a plan where all San Diego lodging properties must contribute to the district’s revenue.

A levy under Proposition 26 is not considered a tax, Lambeth said, if it’s “imposed for a specific benefit conferred or privilege granted directly to the payer that is not provided to those not charged.”

David Steel, a research analyst with the local hotel workers union, told council members that he believes the tourism tax is illegal under Proposition 26. He would not say, however, whether organized labor plans to mount a legal challenge.

“The TMD is essentially a TOT (transient occupancy tax) increase, except that the money is controlled by powerful hoteliers rather than the public,” Steel said following the meeting. “We should be investing this $1.2 billion in the city of San Diego, not a select group of hotels in town.”